Family Security Law Group, APC write about estate planning, wills, trusts, durable power of attorney, title and property agreements, special trusts, probate, trust administration and more!

04/09/2018

Can Your Retirement Plan Survive a Disaster?

“It's an unfortunate fact of life, but disasters happen. How you prepare for them makes a huge difference. Here's how to protect yourself from two of the biggest retirement disasters: long-term care costs and bear markets.”

We’ve seen a lot of disasters recently. Hurricanes, floods, fires, and earthquakes seem to make the news every month.

Kiplinger’s recent article “Disaster-Proof Your Retirement Plan” says that many people who prepared, still lost their homes and, in some instances, family. Others, who did nothing, were fortunate to escape peril. Because misfortune can work haphazardly, people can become complacent.

Many pre-retirees understand the importance of planning, but it’s just not a priority for them just yet. Now they’re healthy, making money on their investments and enjoying a steady paycheck. They know they’ll have to buckle down and get on it, but not right now.

However, like any type of disaster preparation, the sooner you solve your vulnerabilities, the more security you’ll have. Here’s a closer look at some of the issues and some solutions.

Many people have long lives, but don’t enjoy them due to health issues. If you’re 65, there’s better than a 50-50 chance you’ll need long-term care at some point in the future, according to the U.S. Department of Health and Human Services. An illness could wipe out your assets quickly. It could leave your surviving spouse with little to live on when you pass away.

It is essential to plan ahead. This is because an extended health care crisis can cost as much as $10,000 per month, even for home care. Medicare doesn’t cover long-term care costs. Without a financial plan to deal with this, retires may be forced to spend down their assets.

There are several financial strategies that can be applied to address long-term care. Traditional long-term care insurance is a good choice, if you’re in your 40s or 50s and still healthy. For those in their 60s, or those who don’t want to pay ongoing premiums, you might buy a single premium annuity or life insurance policy with a long-term care rider. Another option is an income-based annuity, which is typically much easier to qualify for, health-wise.

If your retirement income plan relies heavily on your investments, poor market performance early in retirement can have a disastrous impact on how long your money will last. A simple strategy for this problem is the "bucket” approach. Calculate your required annual expenses and, if possible, move four years’ worth into safer investments like money-market funds, very short-term bonds or an annuity. When we see the next market correction, you’ll be able to weather the storm and use these safe assets to cover your living expenses.

Remember, life-changing events can often come out of nowhere. A retirement plan that addresses the significant risks that you have knowledge about, can help you to be confident now and into the future.